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Senators Push IRS for More Notice to Charities Risking Automatic Revocation

Two senators are sponsoring legislation which would require the IRS to give nonprofit organizations more advanced notice that they are at risk of losing tax-exempt status. This measure was introduced this past week by Republican Dan Coats and Democrat Ben Cardin. The senators state the IRS does not adequately notify charities that are running the risk of having their tax-exempt status revoked for failure to file returns for three consecutive years. The senators hope that more advanced warning from the IRS will prompt organizations to file the necessary paperwork before their tax-exempt status is revoked. “This allows for minimal disruption to the good work being performed by these charities in our local communities and frees up scarce IRS resources,” Cardin said.

The revocation process is intended to clear out defunct entities, but the senators say that the rule hurts small groups who don’t know about the filing requirements more than it helps the government clear out these defunct organizations. “Because the IRS does not adequately notify charities as this deadline approaches, many nonprofits discover the problem only after their names appear on a list of organizations that have already lost their status, after it is too late to act,” states Coats. According to the senators, nearly 584,000 charities and other nonprofits have lost their status because of the auto-revocation, and at least 80,000 of those organizations haven’t reapplied for tax-exempt status.

This is long overdue.  When the Pension Protection Act of 2006 was passed and, with it, 501(c)(3) auto-revocation rules, we made note that this instant “death penalty” rule was overly draconian.  Along with other rational voices, we advocated for a purgatory of sorts…a suspension period of reasonable length…that would precede total revocation of tax-exempt status.

Maybe, hopefully, this proposed legislation will get attention and fast-tracked to approval.  Many small, volunteer-driven (but administratively challenged) nonprofits would greatly benefit.

For more information, check out this article by the Chronicle of Philanthropy, and this article by The Hill.

Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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